BEIS and FRC: Measures in respect of company filings, AGMs and other general meetings during Covid-19 – Q&A
On April 17, 2020, the Department for Business, Energy and Industrial Strategy (BEIS) and the Financial Reporting Council (FRC) published a series of Q&A to assist companies for which COVID-19 restrictions are making planning Annual General Meetings (AGMs) and other general meetings and filing documents at Companies House difficult. The Q&A document notes that the legislation announced on March 28, 2020 to assist companies in these areas is being worked on, with measures being developed urgently.
The Q&A covers the following:
- The form of the flexibility on AGMs and other general meetings – It is likely that companies will be able to hold “closed” meetings with a minimum number of attendees by telephone or other means of communication. For some companies, this means they will be able to override provisions in their articles of association for a short period.
- Quorum at such meetings – Most articles require between two and five people for a quorum so this should be achievable via telephone or other means of communication.
- Virtual meetings – It is noted that these are uncommon and untested in the UK and mandating their use could create further significant issues.
- Shareholder engagement at AGMs – Shareholders can vote by proxy and companies will be expected to engage with shareholders before, during and following meetings including responding to questions submitted by shareholders. Companies should also consider holding shareholder days later in the year and continue to keep shareholders informed of the decision-making process and issues affecting the company as they normally do, for example, changes to the business model or risks.
- Hard copy documentation – Temporarily companies will have the flexibility to provide notices and other meeting documentation by email, websites and other electronic media rather than in hard copy.
- Extending AGM deadlines – The option of an extension is likely to be provided but it is thought that most companies will want to hold meetings within their normal timeframes, for example, to renew corporate authorities.
- Imminent AGMs – Companies are advised to consider the Chartered Governance Institute’s guidance on how to manage company meetings within existing restrictions.
- Change to accounting reference period – This can be done but will then be set for next year unless subsequently shortened. Companies are reminded that Companies House has extended the filing deadline for audited accounts which should help.
- Requirement for legislation – The aim of it is to ease pressure on businesses so it is thought to be worthwhile.
- Extensions to other filing deadlines – Companies’ ability to file documents at Companies House is being monitored and, if necessary, other deadlines may be extended to give companies breathing space.
(BEIS and FRC, Measures in respect of company filings, AGMs and other general meetings during Covid-19 – Q&A, 17.04.2020)
FCA: Statement of Policy – Listed companies and recapitalisation issues during the coronavirus crisis
On April 8, 2020, the Financial Conduct Authority (FCA) announced a series of measures aimed at assisting companies to raise new share capital in response to the coronavirus crisis while retaining an appropriate degree of investor protection. The measures cover smaller share issues, share issues with a prospectus (shorter term prospectuses and working capital statements) and general meeting requirements under the Listing Rules. Issuers and advisers are also reminded that there is no change to the requirements under the Market Abuse Regulation and companies must fulfil their obligations concerning the identification, handling and disclosure of inside information.
Two technical supplements have been published in relation to working capital statements and general meeting requirements under the Listing Rules and these will apply until the FCA advises otherwise. The FCA welcomes feedback on these measures, further details of which can be found in this briefing, COVID-19: UK FCA announces measures to assist listed companies in raising new share capital.
(FCA, Statement of Policy – Listed companies and recapitalisation issues during the coronavirus crisis, 08.04.20)
(FCA, Additional primary market measures to aid listed companies, 08.04.20)
Investment Association: Letter to chairs of FTSE 350 companies
On April 8, 2020, the Investment Association sent a letter to the chairs of FTSE 350 companies setting out their members’ views on engagement and communication, financial reporting, annual general meetings (AGMs), dividends, executive pay and long-term capital raising.
Key points in the letter are as follows:
- Engagement and communication – While investors want to allow management teams and boards to focus on the most significant issues for their business, they request that companies maintain as open a dialogue as possible with shareholders and other stakeholders, and investors will support those whose primary focus is maintaining a business that is ultimately sustainable over the long-term rather than prioritising short-term financial returns.
- Financial reporting – Companies should use the extra two months flexibility for preparing financial reports granted by the Financial Conduct Authority where needed.
- AGMs – Investors support the Governance Institute’s guidance on holding AGMs currently and companies are encouraged to consider how to effectively engage with their retail and institutional shareholders in lieu of the normal AGM meeting.
- Dividends – Investors consider that companies should consider their position at the time when a dividend is paid, as well as when it is declared, and companies’ approach to paying a dividend should include ensuring employees and suppliers can be paid. While investors expect companies to take a prudent approach to current and future dividend payments, shareholders do not want companies to unnecessarily reduce or rebase the dividend level and where a dividend is suspended, shareholders will expect dividend payments to be restarted as soon as it is prudent to do so. Companies should also be transparent about their approach to dividends, particularly if seeking additional capital.
- Executive pay – If companies cancel dividends or change workforce pay, investors will support this if boards and remuneration committees demonstrate how this should be reflected in their approach to executive pay.
- Long-term capital raising – Investors believe the Pre-Emption Group Guidance published on April 1, 2020 should be respected and accept that in exceptional circumstances a cashbox may be the only suitable approach. Shareholders will not expect companies to be led by the views of a company’s advisory banks and will expect long-term shareholders to be offered the placing in the first instance.
(Investment Association, Letter to FTSE 350 chairs, 08.04.2020)
ISS: Impacts of the COVID-19 pandemic – ISS Policy Guidance
On April 8, 2020, Institutional Shareholder Services (ISS) issued guidance as to how it will apply its benchmark policies and voting guidelines at Annual General Meetings (AGMs) held in 2020 in light of the issues and challenges companies are facing from the COVID-19 pandemic.
Issues covered in the guidance include ISS’ approach to the following:
- Postponements of AGMs and virtual meetings
- Director attendance at shareholder meetings
- Changes to the board and senior management
- Changes in metrics or shifts in goals or targets in relation to executive compensation
- Option repricing
- Dividends
- Share repurchases
- Capital raising, including share issuances and private placings.
(ISS, Impacts of the COVID-19 pandemic – ISS Policy Guidance, 08.04.2020)
European Commission: Consultation on the Renewed Sustainable Finance Action Plan
On April 8, 2020 the European Commission published a consultation on its forthcoming Renewed Sustainable Finance Action Plan. The updated Action Plan comes as a follow-up to its initial 2018 Sustainable Finance Action Plan and is meant to broaden and deepen the EU sustainable finance regulatory framework. Building on from the legislative and regulatory initiatives in the 2018 Action Plan, the great majority of which is in place or due to be officially adopted, the European Commission is looking for ways to further develop its policy.
The Renewed Sustainable Finance Action Plan will predominantly focus on three areas:
- Strengthening the foundations for sustainable investment by creating an enabling framework, with appropriate tools and structures and to support financial and non-financial companies in laying their investment focuses increasingly on long-term development and sustainability-related challenges and opportunities.
- Increasing opportunities to have a positive impact on sustainability for citizens, financial institutions and corporates. This second pillar aims at maximising the impact of the EU frameworks and tools to create bigger incentives to make use of these.
- The full integration of climate and environmental risk into financial institutions and the financial system as a whole while ensuring that environmental and social risks will further contribute to the greening of finance.
The consultation, which consists of 102 questions, considers a great number of subjects and issues including the following:
- Whether the EU should take further action to encourage investors to engage, including making use of their voting rights, with companies conducting environmentally harmful activities that are not in line with environmental objectives and the EU-wide trajectory for greenhouse gas emission reductions, as part of the European Climate Law, with a view to encouraging these companies to adopt more sustainable business models; and to discourage investors from financing environmentally harmful activities that are not in line with environmental objectives and the EU-wide trajectory for greenhouse gas emission reductions, as part of the European Climate Law.
- Whether member states should be required to have an independent monitoring framework to ensure the quality of information disclosed in remuneration reports published by listed companies.
- Whether there are any barriers in the EU regulatory framework beyond those identified by the European Securities and Markets Authority (ESMA) that prevent long-termism, and whether there is scope for further actions that could foster long-termism in financial markets and the way corporates operate.
- Whether there should be a mandatory share of variable remuneration linked to non-financial performance for corporates and whether a defined set of EU companies should be required to include carbon emission reductions, where applicable, in their lists of ESG factors affecting directors' variable remuneration.
- Beyond the Shareholder Rights Directive II, whether EU action would be necessary to further enhance long-term engagement between investors and their investee companies.
- Whether voting frameworks across the EU should be further harmonised at EU level to facilitate shareholder engagement and votes on ESG issues.
- Whether EU action is necessary to allow investors to vote on a company's environmental and social strategies or performance.
The 14-week consultation is open for comments until July 15, 2020. The European Commission will take the feedback received into account when articulating its final updated Sustainable Finance Action Plan, which it is planning to publish in Q3 2020.
(European Commission, Consultation on the Renewed Sustainable Finance Action Plan, 08.04.2020)
